The economic value of our bioresources assets

In April 2017 Ofwat asked Water and Sewerage Companies (WaSCs) to estimate the economic value of their bioresources assets in preparation for a separate bioresources price control from April 2020.

The Regulated Capital Value (RCV) is an estimate of the value of a regulated business which is used to calculate the appropriate level of returns for investors, a key element of the price control process.

The Modern Equivalent Asset Value (MEAV) provides an estimate of the cost of replacing all the assets used in a regulated business with their modern equivalent. The economic value of an asset can be derived from the net income that an asset generates over time.

Our estimates of our proposed RCV allocation at March 2020 reflect the economic value of our assets which required us to estimate our costs for the asset processes for the modern equivalent.

Our estimates are shown below to allow other WaSCs to consider their own valuations and help develop more robust allocations for the price review in 2019 (PR19):

£ million

Gross replacement value of our existing assets (GMEAV)

418.445

Net value of our existing assets (NMEAV)

173.504

Our provisional estimate of the overall gross valuation of a theoretical new entrant's bioresources assets (GMEAV) at March 2020

204.525

Our proposed RCV allocation at March 2020

128.276

To arrive at these estimates, we relied on Ofwat’s guidance and followed its suggested five-step process.

In doing this, we first set out our existing bioresources assets and strategy, before considering what modern equivalent assets would be built by a new entrant, unencumbered by previous decisions and historic technologies. These were then costed, to determine a gross valuation, before we made adjustments to these cost estimates to reflect our existing assets and commercial arrangements currently in place.

We were then able to consider what the impact of this new valuation would be on customer charges, before undertaking a number of cross-checks and considering whether we should have used alternative approaches.

Throughout the process, we checked and re-checked our workings and assumptions. Our approach was then reviewed externally by economic consultants and our auditor.

We submitted our estimates to Ofwat on 29 September 2017 along with supporting documentation.

These tables contain information on the volume of bioresources produced at each our sewage treatment works.

If you are interested in
providing a service to transport, treat and/or recycle the bioresources we
produce at our sewage treatment works, or if you would like us to offer provide
you with a competitive transport, treatment and/or recycling service for any
organic waste your organisation produces, please contact us at bioresources@wessexwater.co.uk